Wealth managers out of step with clients on transparency, advice channels and the advisor’s role

Wealth managers in Australia will need to employ more client-centric strategies and make better use of technology if they want to capture a share of the sector’s US$200b global revenue opportunity, according to EY’s 2016 global wealth management report. The experience factor: the new growth engine in wealth management report found firms that fail to make strategic investments to deliver a superior client experience may risk losing a substantial portion of their current business, with 28% of Australian clients surveyed open to switching their wealth managers under the right circumstances.

The vast majority (73%) of both Australian and global clients surveyed have relationships with multiple wealth managers. While Australians with multiple wealth managers are less likely than the global average to be willing to consolidate their assets with fewer providers (38% compared to 57%), there are still over a third who would – representing a significant retention risk for local managers.

EY Oceania Wealth and Asset Management Leader, Antoinette Elias, says the research results should make the local industry sit up and take notice.

“For Australian clients, better pricing and better portfolio returns were the key drivers of change, but the research also found a need for greater transparency around fees and a stronger focus on goals-based planning,” Elias says.

“Australian clients also indicated an increasing willingness to embrace new technology, with one in four (25%) open to investing via automated advice services, such as robo-advisors. In this environment, wealth managers will need to differentiate themselves around customer experience if they want to capture market share.”

More than 2,000 wealth management clients representing a broad spectrum of segments including wealth level, age, region and gender were surveyed by Oxford Economics for this report. EY also conducted interviews with more than 60 wealth management executives globally to better understand how wealth managers are thinking about and investing in key growth initiatives.

With client assets in play, 50% of wealth managers interviewed globally indicated that revenue growth will be the top focus of their strategic business priorities in the next two to three years. Specific revenue growth initiatives will focus on enhancing the client experience. Within the Asia-Pacific region, 31% of wealth managers saw revenue growth as their top focus.

But, while wealth managers in other regions have their strategic investment budget focused on revenue growth, many of those in Asia-Pacific are still bogged down in regulatory compliance, with managers across the region expecting to invest 42% of their strategic budgets in this area.

Elias says this highlights the continuing struggle for wealth managers in the Asia-Pacific region to comply with regulations that are constantly changing, seize opportunities through various passporting schemes, and compete to develop innovative wealth products and services that align with customer preferences.

“Although the passporting schemes will facilitate the cross-border marketing of managed funds across participating economies, their immediate impact is to ramp up the cost of compliance. Along with increasing competition, this is contributing to margin pressure in the region. Sixty-two percent of Asia-Pacific firms reported declining margins, citing competitive fee pressure and regulatory compliance costs as the key causes — compared with just 18% in North America.”

Bridging the client experience gap

Client experience in wealth management is unique and complex, as it spans an individual’s life journey of managing and preparing for the unknown, the report notes. As a result, wealth managers have lacked a common definition of client experience or a standard against which firms can measure themselves. Yet, the report identifies a common view of client experience, as respondents say they value performance, engagement and trust the most in their wealth managers.

Clients and firms are aligned on most of these values, but there are three areas where firms appear to be out of step with client expectations, the report finds:

Transparency — Clients are eager for a new level of transparency that includes rating their advisors and connecting with similar clients in public forums.

Advice channels — Clients are significantly more open than firms to adopting digital channels for wealth advice, not just service.

Role of the advisor —The financial advisor may become more like a financial therapist in the future, helping clients with spending habits or reaching life goals instead of strictly providing standard asset allocation advice or other activities that could be automated.

“In an industry where advances in technology, new types of competition and client expectations are changing rapidly, firms that challenge traditional norms while remaining true to their core value proposition will be better positioned to succeed,” Elias says.

“The rules of the game have changed. In order to attain growth, managers must now learn to compete with man, machine and hybrid-based firms to retain and attract assets. Delivering a comprehensive client experience is the linchpin that will make or break a firm in this new wealth management landscape.”